Demand still fueling data center surge, with northern Virginia a hub for development

As demand for digital services continues to boom and interest in data centers grows, northern Virginia continues to be a hub for data center development, according to CBRE.

The region is a popular location for data centers because of a favorable tax environment, a developed fiber network, an educated workforce, the availability of inexpensive energy and affordable land. Although there are other primary data center markets nationwide — such as Dallas, Silicon Valley, Chicago, Phoenix, tri-state New York and Atlanta — northern Virginia has dominated market share and activity, especially in recent months.

Case in point: These seven primary markets had 453.4 megawatts (MW) of net absorption in the data center sector during the first half of 2022, more than triple the level of the first six months of 2021. Nearly 60% of this absorption occurred in northern Virginia. The region now has a whopping 1,908.1 MW of data center inventory, the most in the country and more than five times that of second-place Dallas.

The area is primed for a further influx of data center space, with user requirements perpetually on the upswing. CBRE reported that several large companies signed leases for more than 60 MW, including some that exceeded 100 MW. Consequently, more than 1,600 MW of new capacity was under construction nationwide during the first six months of this year, more than twice the pipeline from first-half 2021.

More than 50% of this new construction is happening in northern Virginia, which saw its under-construction total balloon by 188% year over year. And much of the upcoming inventory is already accounted for. Of the 837 MW under construction in the region, 76% has been preleased, much it by massive, hyperscale computing companies like Facebook, Amazon, Google, Oracle and Microsoft.

With so much demand, the overall vacancy rate for primary markets in the data center sector is 3.8%, a record low. Accordingly, average rental rates across primary co-location markets grew for the first time since 2017, climbing 5.9% year over year to reach $127.50 per kilowatt (kW) per month for a 250- to 500-kW requirement.

Notably, despite its market dominance and relatively low vacancy rate (1.9%, second only to Silicon Valley’s 1.3%), rental rates in northern Virginia remain the lowest among primary data center markets. Data centers in the region typically rent for $95 to $130 per kW per month, compared to $110 to $150 in Dallas or $150 to $175 in Silicon Valley.


More Headlines